Olam Group Limited

Good morning to all present here today and to those who have logged on to our live webcast of our full year results briefing for the year ended December 31st, 2022. I would like to bring your attention to our disclaimer statement that is on page 2 and page 3 of our presentation on forward-looking statements. I'm Hang Hung of Olam Group Investor Relations. Today, I'm joined by our senior management team here, led by our co-founder and Group CEO, Sunny Verghese, Group CFO, Anne Mutukuma, on my extreme right, as well as the CEO of OFI, Olam Food Ingredients, A. Shaker. We are pleased to share with you the results we've achieved in 2022 and to date on our reorganization journey. Mutu will begin our narrative by first taking us through the consolidated Olam Group results. OFI CEO Shekhar will then take over to discuss the financial and operating results of OFI. Sunny, as the CEO of Olam Agri, will follow on with the performance of Olam Agri as well as of the remaining Olam Group businesses. He will also share his views on the business outlook and prospects and recap the progress we've made in the reorganization before summing up the key takeaways for us. We will then open up the floor and webcast for Q&A. You can actually now post your questions on the webcast, which we will address during the Q&A session. I'll stop here and let Mutu take over from now. Thank you.

Thank you, Hangong. Warm welcome once again to our second half and full year results of OLAM Group for 2022. Here and at another very strong results for 2022, culminating in a through last three years, where we have navigated through the pandemic, the onslaught of Russia-Ukraine war, the significant global supply chain disruptions, rapid increase in interest rates, and other geopolitical uncertainties. It is a testimony that we have stress-tested OLAM Group's strategy across these last three years especially, and 2022 is again a very strong evidence of the differentiated strategy that the Group has adopted. In terms of the highlights and an EBIT of $1.6 billion and an adjusted EBIT of $1.655 billion and net gearing at 1.47 times as compared to 1.72 times this time last year. And I will talk about each of these metrics more in detail in the rest of the presentations. EBIT grew 13.1% on a year-on-year basis, with the remaining OLAM Group really turning around from a negative 151 million of EBIT in 2021 to the positive territory of 4 million. OLAM Agri here again had a very strong 13.9%. growth in EBIT on top of a very strong performance in 2021. YFI had a lower EBIT of roughly $74 million and adjusted for some of the amortization that we have done in terms of the recent acquisitions. It is much lower and primarily the decline has been in the global sourcing segment and I'm sure Shekhar will talk about it more in detail. We have very strong cash flow generation, as I had talked about in the earlier slide, of $1.9 billion of free cash flow to equity and $2.7 billion of free cash flow to firm. And on top of a very strong, robust cash position of $4.8 billion and adjusting for readily marketable inventories or secured receivables and unutilized bank lines, we have a very healthy liquidity position of roughly $25 billion. Thank you very much. We have reduced our gearing from 1.47 times from 1.72 times on account of very disciplined working capital management, significantly lower capex, and also on top of concluding our private placement of 35.43% equity sales stake to Salik in Olam Agri. Here we have a peak of the consolidated financials by operating group. Volumes, no surprise here, primarily 89% of the volumes is contributed by Olam Agri, roughly 8.4% by OFI and the rest by the remaining Olam Group. Similar trend in revenues, we have 67.2% of the revenues contributed by Olam Agri, roughly 30% by OFI and the remaining 3% by the remaining Olam Group. EBIT at $1.6 billion, 53% from Olam Agri, 47% from OFI, and roughly 0.3%, or $4 million of positive EBIT from the rest of the Olam Group. You can also see in terms of the invested capital, a total of $19.3 billion, a marginal increase of 1.7% compared to 2021. Roughly 60% is in OFI, 26.5% in OLAM Agri and roughly 14% in the remaining OLAM Group. As you all know, during the year in 2022, we had reorganized in moving some of the assets within the operating groups and that we had talked about in detail in the first half presentation in August. Here we have just a disaggregation of a sales volume. Sales volume declined roughly 2 million tons from 45 million tons in 2021 to 43 million tons in 2022. As you can see in the slide, most of the decrease has come from Olamagri, and primarily in the origination and merchandising segment, largely due to reduction in our trading volumes from Russia and Ukraine after the onset of the conflict. However, point to note is that in spite of a significant decline in our inability to trade volumes from Russia and Ukraine belt, we have been able to more than 50% offset volume decline from other sources of products that we have done from other origins. And that, again, demonstrates the resilience and our global sourcing presence that all our customers love. In terms of EBIT, EBIT grew 13.1% to $1.6 billion. Olam Agri had an increase of $105 million on top of a very strong year in 2021. As I had indicated earlier, the remaining Olam Group has contributed strongly, a swing of $155 million from a negative $151 million in 2021 to a positive $4 million. And here again, all-around contribution from the deprioritized assets, the continuing and gestating assets, and Sunny will talk about it more in detail in the rest of the presentation. And as I had indicated earlier, OFI had a marginal decline of $74 million, primarily in the global sourcing segment. And that contributed to an overall EBIT of $1.6 billion for 2022. Operational PACME stood at $782 million, down 18.7%, primarily due to significantly higher interest costs and also some tax provisions. We had earlier flagged as part of the reorganization there will be some continuing tax disenergies. and that had gone through, and that is what has happened as expected. However, the rapid rise in interest rates through 2022 had resulted in a significant increase in net finance cost. That is about roughly $317 million that you can see in this slide. However, the change in operational PATMI you can see is only $180 million, which is clearly a reflection that a bulk of our interest cost increase have been able to pass through to our customers. There has been a marginal increase in invested capital from $19 billion to $19.3 billion. Very disciplined fixed capital management, almost flat year on year, and roughly $300 million of increase in working capital in spite of very significant increase, continued increase in commodity prices, especially in the first half of 2022. Gearing, as I highlighted earlier, came down from 1.72 times in 2021 to 1.47 times, on top of very disciplined working capital management, significantly lower capex, and also on account of the divestments that we had done during 2022. Adjusted for RMI and secured receivables, we are at a very healthy position of 0.64 times in 2022. Very strong positive free cash flow to equity of $1.9 billion. More importantly, the free cash flow to firm stood at $2.7 billion. A swing of $3 billion on a year-on-year basis contributed by operating cash flow, contributed by change in working capital, as well as significant cash generated through divestments, including the SALIC deal that was completed late last year. and offset by a higher interest paid of $322 million, resulting in a $1.9 billion of positive free cash flow equity asset 2022. With that, I will hand over to Shekhar to take through financial and operating performance for OFI. Thank you.

Thank you, Mutu, and a warm welcome from my side, too. So I will talk through the business of OFI, and as all of you know, after the reorganization in January 2020, five strong platforms in cocoa, coffee, nuts, dairy, and spices were put together and came up as OFI. And that journey today is progressing very well. We are today a $16.5 billion entity with roughly $1.1 billion in EBITDA and roughly $800 million in EBIT. But more importantly, the whole focus on building the value-added part of the business, and as we reorganized – bless you – We reorganized. We were building on the strong global sourcing platform that we have built over the last 33-odd years, a sustainable, traceable, differentiated platform that we got across all these businesses. On top of that, the value-added journey has accelerated, and you'll see both in terms of investments as well as EBIT that that journey continues, and we are quite excited by that. Having said that, FY22 unfortunately has been a bit of a disappointing year, and we need to contend with the factors that impacted many people in the marketplace, but certainly had its impact on us. And I would classify that as a set of two set of circumstances. One were some major events, the energy shock immediately after the war, which contributed significantly. to a big jump in energy prices, especially in Europe, which impacted the execution against our sold contracts. So that was one big shock. We talked a little bit about that at the start of the year in the half-yearly results. The second big aspect was the impact on continued lockdowns in China or a harsher lockdown in China, which impacted some parts of the global sourcing business. and prices especially in some of the nut categories and partially in dairy. But these two external shocks were offset by a very resilient performance across the rest of the portfolio. And what gives us confidence is that while these two shocks, we are all aware of what happened behind this. I don't need to explain that. But the business was not only able to contend with it, both in terms of managing the customer supplies, managing the disruptions, managing the high inflation energy and others. but also working very closely with the customers to recover the pricing, which has started flowing through in Q3 and Q4. And therefore, as we enter into 23, we feel quite confident that the trajectory that we established during 20 and 21 post reorganization will be back to that trajectory. And this dip in 22 is obviously disappointing, but also, in a sense, we feel more optimistic because net of this – the business was able to, was resilient enough to come out of the shock. So if I just look at the numbers in front of you, and you got here the 2020, 21, and 22, So we had a very strong recovery in 21 from COVID. Both global sourcing as well as ingredients and solutions both did very well. So compared to that, and we had a fall in global sourcing, which Muthu had also highlighted earlier, and net of the energy shocks and everything else, the value-added ingredients and solutions part of the business still was able to maintain its EBIT. despite those knocks. So, therefore, there was growth in the rest of the business, which was not impacted by that. So that was quite – we feel quite heartened by that. And on an overall basis, if you look even at the trajectory of 20 to 22, not just the difference between 21 and 22, there's still a 4% EBIT growth across the portfolio, in which we believe net – and if you remember, we had provided a guidance that this business – will be looking at a medium to high single-digit EBIT growth over the medium term. We feel quite confident that that trajectory will return in 23 and onwards. On the invested capital side, sorry, the other thing I should mention is that this EBIT growth beyond some of the events that happened is also absorbing a lot of depreciation and amortization of the new acquisition that we completed as well as the capex that we have invested in which was invested through 21 and 22. the results of which are still not flowing through. So net of the one-off events, net of the very strong 21, the business, these results have to be seen in the context of those two parts. And on the invested capital side, therefore, you see both in the fixed capital and the working capital, the impact of the investment that we have made. And Most of them you're all aware of. Last year we made two acquisitions in Club Coffee in Canada and Merch, which is a private label company in Germany, both doing quite well. But those investments were made in the middle of the year, and so the full impact of that will flow through. We have also invested in the Soluble Coffee Factory in Brazil, which is expected to be commissioned in the second half of this year. The New Zealand Dairy Processing Project, again, expected to be commissioned in August. So a lot of these investments are pretty much complete, but the EBIT has not happened. So you will see the increase in invested capital with the EBIT impact on the overall portfolio. So looking at the global sourcing per se, global sourcing, we have had the impact primarily in the nuts category and predominantly because of China. And that has been the big impact. There has been, of course, a little bit of lower coffee volumes and EBIT in the Q4 because of what was happening in Brazil. But overall terms, the big impact to this business coming from the nuts category is predominantly also impact of almonds and almond pricing, again, which was impacted by lack of demand from China. But across all platforms, if I look at cocoa, if I look at dairy, if I look at coffee, The global sourcing business did very well. And what is happening there is the sustainability certified traceability premium that we are getting across those businesses. So it's not about growing volumes. It's all about really managing a differentiated impact for the sustainability platform that we have built across these businesses. That's been the focus in this business. And despite a significant increase in prices, if you notice, overall, OFI has almost had flat volumes with a 16% growth in revenue. So we had a significant increase in prices, but the business has managed working capital in a very disciplined, efficient manner. And therefore, you'll see even in global sourcing, there is a reduction in working capital despite the increase in prices. So that is global sourcing on ingredients and solutions. So like I mentioned, it's been a flat performance, and this is after taking a big knock on energy, especially in Europe, both across cocoa processing and coffee, soluble coffee processing, and in other areas. That's been a big impact. A lot of the new acquisitions that were invested in during the course of the year have still not started yielding fully. But net of that, this business has maintained its EBIT, and that is primarily because the industrial spice business, the nuts manufacturing business, the nuts private label manufacturing business, the soluble coffee business in Asia, the cocoa processing businesses in other parts of the world, all of them have really made up for that impact. So a flat performance despite the one-off impact and the incremental depreciation that we have taken for the investments is actually, we feel, a quite heartening thing. And if you look at the overall scheme of the business, all our investments and the EBIT growth is really going to come out of the value-added ingredient solutions business. being built on a very strong global sourcing platform. So it's not the value-added business really gains from the global sourcing platform, but the investments and the growth in EBIT and growth in margins and growth in returns are going to come from this segment going forward. So pulling all this together, what I'd like to leave you with is probably two thoughts. OFI is a business that was carved out and curated out of OLAN three years ago. So the journey, the principle rationale, the commercial logic of OFI is very strong. in terms of how we are working closer with customers, selling more, but more importantly, upsell and cross-sell across this portfolio, increasing the value-added scope of this portfolio in the ingredients as well as the solutions increasingly that we are doing with our customers, the new capabilities that we have invested in which are beginning to show results, whether it's in innovation, in digitization, in sustainability, across the customer solution center that we have built, are all invested for and are beginning to show results. So we feel quite confident that notwithstanding this dip in 2022, the business is poised to deliver on the medium-term guidance that we have indicated. and we feel quite strong and optimistic about the prospects in 2023 and beyond. Thank you, and I'll hand it over to Sunny.